JPMorgan Faces Fed/OCC Order to Improve Compliance

Regulators are likely to order JPMorgan Chase to correct lapses in how it polices suspect money flows, in an action expected as soon as Friday.

NEW YORK -- U.S. regulators are likely to
order JPMorgan Chase & Co to correct lapses in how it
polices suspect money flows, in an action expected as soon as
Friday, people familiar with the situation said.

The order would be the latest action that U.S. regulators
have taken this year to force banks to tighten their anti money-
laundering systems, which are supposed to flag suspect
transactions from sanctioned countries or those from customers
with ties to drug trafficking or terrorism.

The action would be in the form of a cease-and-desist order,
which regulators use to force banks to improve compliance
weaknesses, the sources said.

The Office of the Comptroller of the Currency and the
Federal Reserve are expected to issue the order.

JPMorgan will probably not have to pay a monetary penalty,
according to one person familiar with the situation.

The Treasury Department's anti money-laundering unit, the
Financial Crimes Enforcement Network, also could take a separate
action against the bank.

A JPMorgan spokeswoman declined to comment.

The status of the inquiry could change, and the timing of
the action could extend to next week or later.

The JPMorgan inquiry dates back several months, according to
people familiar with the probe. Under the order, the bank is
expected to be required to bolster systems it uses to monitor
risk and transactions.

Regulators enforcing U.S. anti money-laundering laws are
required to issue cease-and-desist orders when they find a bank
is violating the Bank Secrecy Act by not keeping up with the
surveillance program the law requires. What happens after that,
however, varies according to the severity of the bank's
violations.

The terms of a cease-and-desist order, in some cases, can
require a bank to review its prior transactions to determine
whether it missed any suspicious activity it should have
reported to regulators. If a high-enough number of unreported
suspicious transactions are found, the regulators may decide to
issue a civil money penalty.

While no immediate action is expected from U.S. prosecutors,
the OCC typically informs the Justice Department when it
undertakes inquiries of this sort, a former comptroller of the
currency said.

"I would think that if the agency gets to the point of
issuing a cease-and-desist order that they've already been in
touch with the Justice Department," said John D. Hawke. Now a
partner at Arnold and Porter in Washington, he said he had no
knowledge of the specific case.

A DOJ spokesman did not immediately respond to a request for
comment.

Britain-based bank Standard Chartered Plc agreed to
pay a total of $667 million to U.S. and state regulators to
resolve anti-money laundering probes, while HSBC Holdings Plc
, also headquartered in Britain, agreed in December to
pay $1.9 billion to settle a U.S. inquiry.

In April, the Comptroller of the Currency identified major
lapses in compliance systems at U.S. bank Citigroup Inc,
which did not pay a monetary penalty.

(Reporting by Carrick Mollenkamp and Emily Flitter of Reuters,
and Brett Wolf of the Compliance Complete service Thomson
Reuters Accelus; Additional reporting by Aruna Viswanatha;
Editing by Lisa Von Ahn)